Page 25: of Maritime Reporter Magazine (April 2020)

Figure 1 further increases project predictability. (In my business that is called a survey.)

Quadrant 3 is a project that has very little predictability with a known client. We occasionally get involved in those projects and then we warn our client that we may be doing a ton of work before we can even fgure out if it was worth doing the work. We never have had serious problems with getting paid on those proj- ects. We did not use a contract, but we did have a frank discus- sion with our client that it may be far from a pleasant fnancial experience. In those situations, you have to have faith that when the project does not work out the client does not lay the blame on your doorstep. These types of projects are not uncommon in the rest of the world and some very big projects have been ac- complished under this approach.

I have never done a deep study of the Nuclear Submarine Nau- tilus contracting structure, but I am almost certain that there were

The really neat part about the graph is that it can also show very many moments where the customer (Hyman Rickover) said optimization movement. The trick is to get every one of your to any number of contractors: “Just go give it a shot, we will pay projects out of Quadrant 4 and to keep them out of Quadrant 4. whether it works or not, I just want to get it done.” The pace of The best way to do that is to build faith between you and your the Nautilus Project was so high that it is highly unlikely that client. It is called business reputation, both for you and your cli- there was a lot of contract development for each little step. The ent. Faith and reputation do not build in leaps; they build in small project simply ran on faith.

steps, many small steps.

Another example was the agreement between George Wash-

This explains why my company uses few contracts. Most of ington and the Continental Congress, that he would work with- our new client contacts relate to relatively small projects as out a salary as the leader of the Continental Army, but would compared to our company size, and it allows us to test the wa- have his expenses reimbursed. (I can’t help but try to imagine ters before we get in deeper and allows us to take a risk on new that negotiation.) friends we have not yet met. It also has a very important effect

Quadrant 4 is where wisdom really comes into play. This is the on effciency. Not having to deal with contracts is a signifcant type of project where you don’t know the client and don’t know cost saver and benefts both the service provider and the client. where the project is going to end up. This is where the real risk I am not arguing for a world without contracts; what I am argu- comes in. A new company may have to take on such clients to ing is that there are many situations where contracts are not cost grow, and some companies may have to take on such clients to effective.

simply survive. I had a business school instructor who defned

Remarkably, the whole marine industry is based on this type of these customers as the ones you want to send to your competi- cost effectiveness, and this is why we live with concepts such as tors.

Utmost Good Faith and the burden to provide assistance in time

I am not totally sure that is the optimal approach, but it is a of emergency at sea, and also admire great Captains and Chief simple answer to a complex issue. However, there are businesses Engineers who run great ships and use the concept of “Trust your where you have to deal with unknown clients on uncertain proj- crew, but don’t forget to verify.” ects. Salvage is my favorite example, and the salvage industry

We have contracts in the marine industry, but the best contracts has developed a solution that is called a No Cure, No Pay or are deeply standardized (BIMCOs) or are purposely quite simple

Lloyd’s Open Form contract, where it simply defers the cost (LOF). The mark of a novice in the marine industry is a player resolution to a later stage and relies on an arbitrator. It is not a who insists on novel or complicated contracts and too often we perfect solution, but it helps both parties at the moment when are asked to help them sort things out after things go wrong; on decisions need to be made.

those projects we do occasionally ask for a retainer.

The Author

For each column I write, MREN has agreed to make a small do- nation to an organization of my choice. For this column I nomi- van Hemmen nate the American Salvage Association Educational Commit- tee, which provides awards to young people who do research in Rik van Hemmen is the President of Martin marine science and engineering. Salvage is an almost incred- & Ottaway, a marine consulting frm that spe- ible act of good faith on unpredictable projects. http://www. cializes in the resolution of technical, opera- americansalvage.org/education-committee.php tional and fnancial issues in maritime. www.marinelink.com 25